Wednesday, 27 February 2008

10-Year Treasury Commercial Traders Super-Bullish

Just updated my Latest Signals page with the results and parameter values for my newly revised setup for the 10-year Treasury note. This one was fun to study since the measures of statistical robustness were through the roof for so many of the possible setups, especially for the commercial traders. It was hard to settle on the best one. The one I'm going to use now has a 99.99997-percent confidence interval for profitability and 99.95 percent for beating the market. Not too shabby! The Sharpe score is 1.9 and Robust Sharpe is 1.4.

So what's the setup doing now? It flipped to bullish with the Dec. 24, 2007, COTs report. (That means the setup thinks the 10-year yield will fall, since the note trades opposite to the yield.) The setup uses a four-week trade delay, so that means it bought on the open Monday, Jan. 28. The commercial net position has remained well above the bullish signal line ever since the initial signal - nine consecutive weeks.

19 comments:

IC said...

Hi Alex;
So many of your indicators are against TA, it must take real guts to hold your positions. The 10yr just broke out of a bull flag pattern and all indications are the yield will rise, perhaps as high as 4.2;falling yields would imply a market crash with money coming out and hiding in the treasuries, and yet your index indicators are bullish. Good luck with all your trading. IC

Alex Roslin said...

Hi Ic,

Thanks for your comment. I don't know about guts. It's more having confidence that this works. So far I'm doing pretty well, but even if I wasn't over the short term that wouldn't bother me since the results from a system with this timeframe play out over a long term.

As for technical analysis, there are dozens of possible tools you can use, so I wouldn't necessarily agree. I know some technicians who are bullish right now, others who are bearish. In fact, I find technicians have a bias toward bearishness, which trading off the COTs has helped me avoid.

Regarding the 10-year signal specifically, take a look at the chart of the yield since July 2007. That looks like a downtrend to me. Was that a bottom in January? Who knows. Could just be a flag. So far resistance is just now being tested, but I can't even begin to see a projection for more upside for the yield when the downtrend line is still intact.

Regards,
Alex

ic said...

With commodity prices and thus the cost of everything increasing long term bond holders are getting reamed; I would think they would demand higher yields to compensate for this rise in prices. Lower yields would imply deflation and thus by necessity a global crisis forcing commodities lower. What do you think?

Joe said...

Alex,

Do you have plans to revise the 30 year bondignal as well. For us prospective homebuyers, looking for 30 year term mortgages it would be very helpful to have a similarly great signal as well.

Thanks, Joe

Alex Roslin said...

Hi Ic,

My chart of the 10-year Treasury shows the prices in a strong uptrend since the summer. I don't like fighting the market, regardless of my economic opinions. As for the implications for inflation or deflation, I can't say. This signal can last a week or a year. I haven't studied any correlations between the COTs data and inflation, but that would be interesting to check out. Sorry, not big on projections!

Regards,
Alex

Alex Roslin said...

Hi Joe,

Yes, the 30-year Treasury is one of the next on my list.

Thanks for your interest,
Alex

ic said...

Thanks Alex. One last question then I will not bother you, really appreciate your time. Do I understand correctly that your stop for this trade would be set below 9% and you would expect to have a winning trade 33 out of 37 times, and with that beat the index by 293%? I ask because it looks like in some cases like soybeans you would have to tolerate a drawdown to 50%. Am I interpreting the table correctly? Thank you again for the blog.

Alex Roslin said...

Hi Ic,

Yes, the stop would be nine percent below the entry price. The win/loss ratio refers to the past results. I can't predict what will happen in the future, but I see the various measures of past results as helpful for deciding on a good setup for a market.

For soybeans, the past largest drawdown was indeed 50 percent. Please also refer to the portfolio allocation column, which indicates I would not trade this particular setup off the COTs data alone. It's more a helpful guide. That's because of the low confidence intervals. (See the confidence intervals columns for that info.)

Regards,
Alex

proscllc said...

So then you would buy IEF for example, right? Did you? If one misses the January date and went long IEF today, then let's assume it turns bearish tomorrow am I correct in thinking there still might be a good chance for profit due to the 4 week delay?

Alex Roslin said...

Hi Proscllc,

Yes IEF would be an option I'd consider. I went long bonds in August with the Canadian iShares Bond Fund (XBB). That was based on my 30-year Treasury setup, but now that I've got a better setup for the 10-year that's on the same signal, I'll switch to using that signal for this position.

You're also right about the trade delay meaning the setup could still be pointing to more upside for the trade. But I'd caution that my results are based on entries on that specific date, so if I wanted to enter a trade right now I would be looking at entirely different criteria - i.e., the price action - to time it. It's just as possible that all the upside for this signal has already happened. No way to know.

Regards,
Alex

Peter said...

Hi Alex,

1. I sold SLV and I'm still having a great month following your signals. Don't let the scoffers get you down.

2. We're still waiting for the new, improved stats. Here is what I've pieced together from your clues:

Sharp, Signal
4.5, Silver
4.3, BKW US Banks
3.4, S&P500 (CAGR 18.7)
2.8, Natural Gas
2.7, Copper
1.9, 10yr Treasury

I'm especially interested in HUI (I've got 37% of my portfolio in Gold Stocks) and Crude Oil (20% invested).

Thanks for all your work. I'll definitely sign up for your future paid site if its within my budget.

decologne said...

Hi Alex,

does this ten year signal in any way relate to bearish signal 13 wk treasury signal waiting for a trade on next monday
or
are these signals to be watched separately.
And (if yes) what would be a more apropriate ETF for trading the 13 wk signal?

Thanks for all you show us here!
lothar

Alex Roslin said...

Hi Lothar,

Thanks for your question. No, the 10-year setup is based on totally different data than the 13-week setup. The Treasuries setups usually seem to give signals around the same time, confirming each other, but not always. Partly that's because they have slightly different sensitivities to the data, so have differing timeframes. One way to judge that is by comparing the past number of trades for each setup.

For ETFs for the short end of the yield curve, check Don Vialoux's comprehensive, regularly updated list at DVTechTalk.com. (See Special Reports.) I also trade the 3-month Eurodollars, which the T-Bill signal is based on, with my new BKX Bank Index setup.

Regards,
Alex

ic said...

Nice call on SKF, profitable for both of us. Are you taking profits today at the end of the day or first thing Monday and then going long?

Alex Roslin said...

Hi Ic,

Thanks for your message. I'll be selling on Monday's open and going long then too.

Take care,
Alex

proscllc said...

The old adage Cut your losses short and let your profits run suggests a tight stop instead of a market order to sell? Why do you sell on the open?

Alex Roslin said...

Hi Proscllc,

Selling on the open is based on my best results testing the data.

Regards,
Alex

decologne said...

Hi Alex,

is there an apropriate ETF to trade the Copper setup?
Thanks!
lothar

Alex Roslin said...

Hi Lothar,

Nothing ideal, but perhaps HMU/HMD trading in Toronto. Nothing very good yet in the U.S., although some individual companies have a decent correlation with the copper price.

Regards,
Alex